A Business Owners Guide to Economic Nexus – Start Online Business

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As a business owner, I’m sure you see the importance of building a business. You want to grow, be productive and make money so that you can provide for your family and live comfortably. So why do state governments try so hard to take away some of your income?

The answer is called economic nexus.

photo credit: Monstera / Pexels x DavidZydd / Pixabay

This guide is going to go over everything you need to know about economic nexus.

What is economic nexus?

Economic Nexus is when a business has enough activity in a state that they are forced to pay taxes to that state. The activities required to establish nexus are sometimes very small or non-existent, but most of the time it’s simply having employees or property in the state.

There are 3 rules you need to know about nexus:

  1. If your business is in a state for even one hour.
  2. If you have employees in a state where none live.
  3. If you own property in a state.

The consequences of having nexus are that the company will be taxed by the state because they now have an activity within the state. However, this can sometimes lead to double taxation as a company that has nexus in a state may also sell goods or services to that state.

Why does it matter for business owners?

Nexus is important for business owners because it means you are responsible for paying state taxes in the state where your business has interactions. A company can have nexus with a state even if all they do with that state is make phone calls or text messages, which means you could be taxed by states that you never visit.

Since most businesses are national or international, leading to many state interactions, you can see how it could be costly for company owners to pay taxes in every single state.

How do you know if you have nexus?

If you have nexus then you will be taxed in that state. However, it isn’t always obvious when you have nexus with a state. Though many companies are aware that they need to pay sales tax when selling goods in states where they have nexus, some businesses are not aware of their economic nexus status until after they receive a bill from the state.

Nexus is different for every state, so you’ll have to find out what the requirements are in your state. The best way to do this is by contacting the appropriate government agency. For example, if you’re located in California then contact the Board of Equalization or if you’re in Colorado then contact the Department of Revenue.

What are the consequences of having nexus in a state?

The primary consequence of having nexus is double taxation, but there are other things to consider as well. For starters, if your business has employees in a state, then you’ll have to file a non-resident tax return wi

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